Risk Management

The financial crisis has transformed since it began in 2007. Ignited by the US sub-prime market, it swept through the structured credits sector before being inflamed by the high leverage in the global economy. The shift to de-leveraging then took a heavy toll on the real economy.

 

NIBC moved early to de-risk its balance sheet, significantly reducing its exposure to market risk since 2007. We scaled back our already conservative appetite for credit risk in anticipation of a severe economic recession. Timely steps such as these meant our risk profile was in healthy shape last year.

 

The financial crisis has triggered a re-sequencing of risk priorities. Before the crisis, the emphasis was on credit, market and operational risk. Though controlling NIBC’s liquidity has always been a major focus of Risk Management, liquidity risk became the department’s top priority in 2009.

 

To ensure long-term liquidity, NIBC launched online retail savings programme NIBC Direct in Germany in 2009 and continued to expand NIBC Direct in the Netherlands. Retail savings now represent some 20% of our total funding. In addition to retail savings, NIBC also raised EUR 5 billion of funding under the Dutch State’s Credit Guarantee Scheme.

 

Our second priority last year was ensuring the quality of our assets. NIBC rigorously conducted a prudent assessment of risks before granting new lending. All the same, impairments have been an inevitable by-product of the economic downturn, for NIBC as for our peers.

 

Our third priority was taking a fundamental credit analysis approach to our Securitisations portfolio. NIBC took its risk management to a higher level by creating a dedicated financial markets credit risk department, which covers the middle ground between market risk and credit risk.

 

The Dutch Central Bank (DNB) confirmed its approval of our use of the Advanced Internal Ratings Based (AIRB) approach for calculating solvency requirements in 2009, the most sophisticated approach. DNB originally granted approval in 2008.

 

More generally, last year saw continuing development in risk management tools, methods and regulations in response to the crisis. A raft of new rules and regulations is now a constant factor for financial institutions.

 

Notes 54, 55, 56 and 57 to the consolidated financial statements contain more detailed information on Risk Management.